October 6, 2014 – by Steven Burke – CRN
Hewlett Packard Monday confirmed that it is splitting into effectively what would become two publically traded Fortune 50 companies: a $56 billion PC and Printing business and a $56 billion enterprise computing business.
HP’s personal systems and printing business will do business as HP Inc. and retain the current branding and logo. HP’s enterprise computing business, which will include enterprise systems, software and services, will do business as Hewlett Packard Enterprise.
HP shares were trading up six percent in premarket trading to $37.20 on news of the split.
Following the split, which is expected to be completed by the end of HP’s fiscal year 2015 ended Oct. 31, 2015, HP shareholders will own shares of both HP Inc. and Hewlett Packard Enterprise.
HP said the split will provide each company with its “own more focused equity currency, and investors with the opportunity to invest in two companies with compelling and unique financial profiles suited to their respective businesses.” What’s more, HP said both companies will be “well capitalized and expect to have investment grade credit ratings and capital structures.
The complex transaction, which is intended to be a tax-free distribution to HP’s shareholders for federal income tax purposes, has been approved by HP’s board of directors, but must still receive favorable rulings with respect to the tax free nature of the deal.
HP Chairman and CEO Meg Whitman, who will retain a hand in both companies, said in a prepared statement that the split will accelerate her five year HP turnaround plan which is approaching the fourth year.
“Our work during the past three years has significantly strengthened our core businesses to the point where we can more aggressively go after the opportunities created by a rapidly changing market,” said Whitman. “The decision to separate into two market-leading companies underscores our commitment to the turnaround plan. It will provide each new company with the independence, focus, financial resources, and flexibility they need to adapt quickly to market and customer dynamics, while generating long-term value for shareholders.”
Whitman said that by transitioning from one HP to two new companies HP “will be in an even better position to compete in the market, support our customers and partners, and deliver maximum value to our shareholders.”
Whitman will be president and CEO of Hewlett Packard Enterprise with lead independent director Pat Russo acting as chairman of the Hewlett Packard Enterprise board.
Dion Weisler, the current executive vice president of HP’s personal systems and printing business, will be president and CEO of HP Inc. with Whitman acting as non executive Chairman of the HP Inc. board of directors.
Partners said they the split opening the door to unlocking value and increasing innovation in both companies. “It’s a brilliant move,” said Mike Strohl, CEO of Entisys Solutions, a Concord, Calif.-based HP Platinum partner, No. 253 on the 2014 Solution Provider 500. “The PC printer business is more consumer focused and the enterprise business is a commercial focused business. Separating them will allow HP to drive more innovation, propelling them and their partners into a market leadership position.”
HP said the split will provide HP Enterprisewith “additional resources and a reduction of debt at the operation company level to support investments across key areas of the portfolio.” The company assured that HP Enteprise customers will have the same “unmatched choice of how to deploy and consume technology with a simpler, more nimble” company.
“Hewlett-Packard Enterprise will accelerate innovation across key next-generation areas of the portfolio,” assured Whitman.
Weisler, for his part, called the split a “defining moment” in the industry as customers look for more “innovation to enable workforces that are more mobile, connected and productive.
“As the market leader in printing and personal systems, an independent HP Inc. will be extremely well positioned to deliver that innovation across our traditional markets as well as extend our leadership into new markets like 3-D printing and new computing experiences – inventing technology that empowers people to create, interact and inspire like never before,” said Weisler in a prepared statement.
HP said as a result of the split it was postponing its October 8 analyst meeting. However, it reiterated fiscal 2014 non GAAP diluted earnings per share outlook of $3.70 -$3.74 and updated its net earnings per share outlook to $2.60 – $2.64.
For fiscal 2015, HP said it expected non GAAP diluted net earnings per share outlook of $3.83 – $4.03 and GAAP diluted net earnings per share of $3.23 – $3.42.
The HP outlook for fiscal 2015, however, does not include one time GAAP charges the company is expected to incur in connection with the split including advisory and tax costs.